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Charging VAT on Supplies Made by Another?

The recent case of D v Commissioner for South African Revenue Service (VAT 1390), which is an appeal referred by the taxpayer to the Western Cape Tax Court after being dissatisfied with the decision by the Tax Board, reconfirms that supplies made by an independent contractor to the taxpayer and recovered from customers by the taxpayer is subject to VAT in the hands of the taxpayer.

The facts of the case are briefly that a taxpayer had engaged the services of certain drivers to collect and deliver goods to customers . The taxpayer would invoice the customer a VAT inclusive charge and would plainly list the amount payable to the driver on the invoice excluding VAT.  The customers would settle the full invoice amount and the taxpayer would in turn pay over the disbursement charge to the relevant driver.

The Tax Court held that the taxpayer is liable for the VAT on the disbursement as representing consideration received by the taxpayer for rendering services by the taxpayer to its customer. The fact that the drivers were independent contractors and the fact that the amounts were required to be paid over to the drivers were held by the court to be irrelevant.

Taxpayers who are required to pay amounts invoiced by them over to third parties should take care to ensure VAT is correctly accounted for and it is recommended that professional advice be sought in this regard. Failure to correctly account for VAT gives rise to penalties, interest and possible criminal prosecution.